Petroleum Exploration History
Petroleum exploration in the Philippines dates back to 1896 with the drilling of Toledo-1 well in Cebu Island by Smith & Bell. Widespread exploration activities were carried out from the 1950s to 1970s. At that time, exploration was governed by Republic Act No. 387 known as the "Petroleum Act of 1949" which ushered in the era of the concession system.
The current Service Contract System took effect in 1973 with the enactment of Presidential Decree No. 87, better known as the "Oil Exploration and Development Act of 1972". With its attractive contractual terms and liberal fiscal regime that are particularly favourable to offshore exploration, activities shifted to offshore areas like the Northwest Palawan Shelf where the first oilfield, Nido, was discovered. Several small fields, all located in offshore Northwest Palawan, were subsequently discovered and produced.
In 1989, a relatively large field was discovered in offshore Northwest Palawan when Occidental Philippines (Oxy) drilled the Camago-1 Well. The Camago Structure revealed the presence of oil and thick layer of natural gas with associated condensate.
This was followed by the discovery of West Linapacan field by Alcorn Philippines in 1990 in which the field commenced production after two (2) years and ceased production in 1996.
In 1991, Shell Philippine Exploration B.V. and Oxy drilled the Malampaya gas field which became, so far, the largest gas discovery in the country with proven reserves of 2.7 to 3.2 Trillion cubic of gas (Tcf).
The Malampaya gas field started its production in 2001 and as of end December 2017 has produced a total of 1.94 Tcf of gas and 75.0 million barrels of associated condensate. In 2001-2002, the oil leg was tested and produced 1.9 million barrels of crude oil.
The natural gas from Malampaya provides clean fuel for five (5) power plants in Batangas.
- Under Presidential Decree (P.D.) 87 otherwise known as the " Oil Exploration and Development Act of 1972, the following incentives are provided for petroleum service contractors:
- Service fee of up to 40% of net production
- Cost reimbursement of up to 70% gross production with carry-forward of unrecovered costs
- FPIA grants of up to 7.5% of the gross proceeds for service contract with minimum Filipino company participation of 15%
- Exemption from all taxes except income tax
- Income tax obligation paid out of government's share
- Exemption from all taxes and duties for importation of materials and equipment for petroleum operations
- Easy repatriation of investments and profits
- Free market determination of crude oil prices, i.e., prices realized in a transaction between independent persons dealing at arms-length
- Special income tax of 8% of gross Philippine income for subcontractors
- Special income tax of 15% of Philippine income for foreign employees of service contractors and subcontractors